The key downward driver in markets on Wednesday was news that Germany, Europe's biggest economy, contracted 0.1% in the second quarter of the year from the previous three-month period as global trade conflicts combined with troubles in the auto industry.
"The relief rally inspired by the Trump administration delaying tariffs on some Chinese imports was short lived - blink and you missed it," said Fiona Cincotta, senior market analyst at City Index. "Data showing that the German economy contracted in the second quarter reignited fears of a global recession, dampening demand for riskier assets such as equities."
In Europe, Germany's DAX was down 1.5% at 11,575 while the CAC 40 in France fell 1.4% to 5,288. The FTSE 100 index of leading British shares was 1% lower at 7,181. Wall Street was poised for similar declines at the bell with Dow futures and the broader S&P 500 futures down 0.9%.
On Tuesday, stocks had one of their better days recently after the Office of the U.S. Trade Representative said it would delay the tariffs on some products, including popular consumer goods, until Dec. 15. A few other products were removed altogether, including certain types of fish and baby seats.
Craig Erlam, senior market analyst at OANDA, said the decision takes the "heat out of the situation" and raises the possibility for more talks. "There's little reason for optimism on this, given how recent meetings have gone, but we have to hope that eventually common sense will prevail," he said. "It's just a case of how much pain both sides are willing to take and inflict on others in the meantime."
Figures overnight showed how China is suffering from the trade conflict with the U.S. Chinese factory output, retail spending and investment weakened in July, suggesting the world's second-largest economy faces downward pressure on growth. Factory output rose 4.8% over a year earlier, a marked decline from June's 6.3%. Retail sales growth slowed to 7.6% from the previous month's 9.8%. Investment in real estate and other fixed assets also weakened.
The markets have been in a spin cycle since President Donald Trump announced on Aug. 1 that he would impose 10% tariffs on about $300 billion in Chinese imports, which would be on top of 25% tariffs already in place on $250 billion in imports. The threat dashed hopes that a resolution may come soon in the trade war between the world's two largest economies, and investors have grown increasingly concerned that it may drag on through the 2020 U.S. election.
Earlier in Asia, Japan's Nikkei 225 added nearly 1.0% to finish at 20,655.13, while Australia's S&P/ASX 200 rose 0.4% to 6,595.90. South Korea's Kospi gained 0.7% to 1,938.37. Hong Kong's Hang Seng was little changed but inched up less than 0.1% to 25,284.96. The Shanghai Composite edged up 0.4% to 2,808.91.
ENERGY: Benchmark U.S. crude fell $1.36 to $55.74 a barrel while Brent crude, the international standard, fell $1.20 to $60.10. CURRENCIES: The euro rose 0.1% to $1.1182 while the dollar declined 0.9% to 105.78 yen.